Case 1.1 - Enron Corporation - 2019 Words

Case 1.1 - Enron Corporation ------------------------------------------------- Discussion 1 The parties we believe to be most at fault for the crisis in this case are a) the Audit Firm engaged in the Enron audit (Arthur Andersen); b) Enron Management (Kenneth Lay, Jeffrey Skilling, Andrew Fastow; and c) the SEC. The Public Accounting Firm: Arthur Andersen The auditor has the responsibility to evaluate the risk of material fraud, including: * Incentives and motives for fraud : Enron was a fast growing company with many start-ups projects, such as the Energy Wholesale Services (a B2B electronic marketplace for the energy industries) or the Enron Broadband Services (an operating unit serving as intermediary between users and suppliers of†¦show more content†¦When being questioned by Congressional investigators regarding the scandal, he simply passed the blame by stating that â€Å"he is not an accountant.† Andrew Fastow was the CFO and created the financial infrastructure for Enron. He, like Skilling, was hailed as one of the top executives in the country as evidenced by his Excellence in Capital Structure Management award presented to him by CFO Magazine. As the CFO of Enron, Fastow should have known better than to do what he did with the creation and operation of the SPEs. His brass was at such a high level that he even named several of them after his children. He, like Kenneth Lay, refused to take any accountability by refusing to testify before Congress in 2002. SEC and FASB The SEC and FASB also share the responsibility for the fraud scandal that took place. The organisms should have passed stronger accounting standards to regulate auditing. Both organizations were in favor of the 3% rule for SPEs. This rule stated that a SPE needed only a 3% investment from an outside investor to be considered independent. This rule allowed Enron to discharge all its unprofitable businesses in SPEs to avoid consolidating losses. That is, the SEC and FASB endorsed a law that allowed companies to dump considerable losses in off-balance entities. A case of fraud was bound to happen. The Auditors, the SEC, and the FASB made it easy for Enron’s management to commit one of the biggest frauds in the history ofShow MoreRelatedEthics : Ethics And The Law1660 Words   |  7 Pagesprovided does not guide us. The ends of the law lead to the beginnings of business ethics. Nevertheless there is a grey area because what is legal may be perceived as unethical by key interest group (Peng Meyer 2011, p82, Crane Matten, 2010, p5-7). 1.1 The importance of ethics in financial statement Financial statements display an official report of Omega Trading monetary activities. They report Omega Trading performance, financial strength, and liquidity. (Business dictionary, 2015; Accounting simplifiedRead MoreEnrons Accounting Fraud1304 Words   |  6 PagesNorthern Natural Gas Company (the ancestor of ENRON) was established in 1930. 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